Credibility Trap: Moyers And Barofsky on Failed Reform and Another Financial Crisis

The Bullet or the Bribe

This is the second part of the Moyers interview with Neil Barofsky.

BILL MOYERS: I thought, at the time, this was an incestuous orgy going on there, between inside players at Washington and inside players at Wall Street. Is that too strong?

NEIL BAROFSKY: It's probably not too strong. It's the fact that their ideology matches up. And look, one of the reasons why their ideology matches up is they all come from the same small handful of institutions. And the people I was dealing with on a daily basis came from the same financial institutions that helped cause the financial crisis and were the most generous recipients of bailouts, Goldman Sachs, Bear Sterns, which, of course, had been adopted by J.P. Morgan Chase. Goldman Sachs, Goldman Sachs, it seemed like every time I turned around, I bumped into someone from Goldman Sachs.

Which is not to single them out. But they all bring that ideology with them, when they come to Washington. It's not like somebody hits them in the head with a magic wand and they give back everything that they've learned and believed in their years of Wall Street. And they bring that ideology with them. And even those who don't come from a specific bank, when you surround yourself, create an echo chamber of likeminded people, it's not terribly surprising that the government policy looks a lot like what the Wall Street institutions themselves would have most desired.

And I think the other side effect of that is that people who are outside of that bubble, people who don't have that background, people like myself as a federal prosecutor or Elizabeth Warren, who was the chair of the Congressional Oversight Panel and before that a Harvard professor, that our views, our criticisms, our contrary positions were discounted, mocked, ridiculed, insulted, cursed at, at times. Because there was no-- we didn't have the pedigree in their world to have a meaningful contribution. So what happens is that there's no new ideas that creep in. And you get this very uniform, very non-diverse approach to the problems of finance.

BILL MOYERS: It was puzzling to outsiders like me that you had TARP money being used to concentrate further the size of these banks.

NEIL BAROFSKY: And the granddaddy of all those transactions, Bank of America acquiring Merrill Lynch. And the important thing to remember here is this is not banks gone wild, banks taking the money and saying, "Party time, we're going to consolidate." They did this with the encouragement of the government. And in Bank of America, a little bit with a gun to the head to complete that transaction.

This was the government policy created by the architects, Ben Bernanke who is chair of Federal Reserve, Tim Geithner, who was then the president of the New York Fed before becoming Treasury Secretary, and Hank Paulson. Their solution originally was to further concentrate the industry, to make the too big to fail banks bigger.

The theory was you take a healthier bank and mix it up with a failing bank and you get something somewhere in between, which is better overall for the system. Which may have had some validity in the very, very short term, but has put us on a path, I believe, to being even more dangerous. Because you have institutions now that are just monstrous in size, over $2 trillion in assets by certain measures, close to $4 trillion by other measures. Terrifying. The idea that any of these institutions could ever be allowed to fail is pure fantasy, at this point.

BILL MOYERS: Are you suggesting that we could have another crash?

NEIL BAROFSKY: I think it's inevitable. I mean, I don't think how you can look at all the incentives that were in place going up to 2008 and see that in many ways they've only gotten worse and come to any other conclusion.

BILL MOYERS: What do you mean incentives in place?

NEIL BAROFSKY: So in a normal functioning capitalist utopia, where, you know, most markets are that don't have this too big to fail, this presumption of government bailout if a firm like a Citigroup amasses massive amounts of risk. And in so doing, they keep razor-thin capital to absorb potential losses, which basically means they're just borrowing tons and tons of money.

And not have a lot of their own money at stake, but it's mostly borrowed money. And it is very opaque. It's not very transparent about how they're running their business. You would expect that creditors, people lending them money, counterparties, those on the other sides of their transactions would either stay away or really exact a premium. But the presumption of bailout changes that on its head and actually makes it go in the other direction. So it removes the incentive of the other market participants to impose what's known as market discipline. Because that's ideally in a capitalist society what happens is that the lenders and creditors and counterparties say, "Hey, we're not going to do business with you unless you clean house, slim down, be more transparent."

But when there's a presumption of bailout, that disappears. Because all those other market players can feel safe in the presumption that if anything goes bad at Citigroup, Uncle Sam is going to come in and make their bets whole.

Then you have the very real incentive for the executives at that institution to then pile on risk. Because they know that if the bets go well in the short term, they get paid. And they get paid very richly. But if it blows up and the risks go bad, no worry, the taxpayer's going to be on the other side of that bill.

That's what happened to Fannie Mae and Freddie Mac, before they collapsed. That's what happened to our biggest banks and global banks before they collapsed. And if you maintain that system, it is foolhardy to think that those incentives and pressures are not once again going to carry the day.

BILL MOYERS: At a conference a week or so ago, here in New York, you said playing ball for Wall Street has become a normal way of life, despite the panic of 2008. What does it mean, "playing ball for Wall Street"?

NEIL BAROFSKY: Well, what I saw when I was in Washington was this real pressure on myself, on other regulators to essentially keep their tone down. And I was told point blank by Assistant Secretary of the Treasury that, this is about in 2010.

And he said to me, he said, "Neil, you're a smart guy. You're a young guy. You're a talented guy. You got your whole future in front of you. You've got a young family that's starting out. But you're doing yourself real harm.” And the reason why you're doing yourself real harm is the harsh tone that I had towards the government as well as to Wall Street, based on what I was seeing down in Washington. And he told me that if I wanted to get a job out on the Street afterwards, it was going to really be hard for me.

BILL MOYERS: You mean on Wall Street?

NEIL BAROFSKY: Yes. And I explained to him that I wasn't really interested in that. And he said, "Well, maybe a judgeship. Maybe an appointment from the Obama administration for a federal judgeship." And I said, "Well, again, that would be great. But I don't really think that's going to happen with my criticisms." And he said it didn't have to be that way. "If all you do is soften your tone, be a little bit more upbeat, all this stuff can happen for you."

And that's what I meant by playing ball. I was essentially told, play ball, soften your tone, and all of these good things can happen to you. But if you stay harsh that was going to cause me real harm in those words.

BILL MOYERS: What made you able to say no to the temptation?

NEIL BAROFSKY: Well, I think part of it is the only job I ever wanted was to be a federal prosecutor.

BILL MOYERS: Send bad guys to jail?

NEIL BAROFSKY: It doesn't get much better than that. Really interesting, complicated work, and wear the white hat. So I didn't have those incentives that I think that were presented. And I think, look, you know, being trained in the U.S. Attorney’s Office for the Southern District of New York, I was trained to be a government employee and to take my oath of office very seriously.

But I wasn't really interested in their reindeer games. And I felt a real obligation and sense of duty to fulfill the oath that I took in Secretary Paulson's office on December 15th, 2008 to do the job that I was sent down there to do. But I wasn't really tempted with a big job on Wall Street. And frankly, if it meant getting a judgeship, compromising the job that I needed to do and was supposed to do, it just wasn't interesting to me.

But look, let me be very clear. I also have the fallback of I was a trial lawyer. I prosecuted a lot of big cases. And I knew that whatever happened, I could always go back and get a good job in New York, working at a law firm or doing legal work. So it gave me a degree of financial freedom even though I basically spent most of my career as a government employee and I didn’t have money. I didn't necessarily need to please anyone to be able to go back and still be able to feed my family.

BILL MOYERS: What happens to a political society, to a democracy, when we stifle or bribe or shoot the sheriff?

NEIL BAROFSKY: When I had my incident with the assistant secretary that my deputy, who had come down from-- who's another former federal prosecutor, who did narcotics work, said to me, Kevin Puvalowski. And he said to me, "Neil, you were just offered the bullet or the bribe, the gold or the lead."

And what he was referring to was a society just like that, which was Colombia, back in the day when Pablo Escobar and the drug kingpins really controlled society. And what he was referring to is that basically to corrupt society Escobar would go to a magistrate or a police officer, police chief, a politician, and say, "You have two choices. You can either take this giant pile of money and do my bidding. Or you can get the lead, a bullet in your head."

And Kevin was joking that I just received the Washington white collar equivalent of the gold or the lead. And it was funny, at the time, but that's kind of what happens in a society where the rewards and incentives are, again, nobody's getting shot in the head thank goodness. But it's a breakdown of the system.

And in some ways, it creates this false illusion that there are people out there looking out for the interest of taxpayers, the checks and balances that are built into the system are operational, when in fact they're not. And what you're going to see and what we are seeing is it'll be a breakdown of those governmental institutions. And you'll see governments that continue to have policies that feed the interests of -- and I don't want to get clichéd, but the one percent or the .1 percent -- to the detriment of everyone else.

BILL MOYERS: You make it clear in the book that the Obama administration fought against cutting down the size of these banks. And yet, in the second debate with Mitt Romney the president said, "We passed the toughest Wall Street reform since the Great Depression." As I hear you, it wasn't all that tough.

NEIL BAROFSKY: Well, that's a literally true statement. Because when you think of-- but it's a very low bar to clear. I mean, all of the regulatory reform since the Great Depression has been peeling back on those regulations. With really the big death knell happening in the end of the Clinton administration with, you know, a couple of bills, one that removed the last vestiges of the separation between commercial and investment banks.

BILL MOYERS: Glass-Steagall Act?

NEIL BAROFSKY: Glass-Steagall.

BILL MOYERS: It took down the wall between those two?

NEIL BAROFSKY: The last part of it. And then the second part by passing a bill that made it, essentially made derivatives out of bounds for regulation. So saying that it's the toughest is literally true. The problem is it hasn't been tough enough in where it most matters.

And again, you don't really have to take my word for it. You just look what the market has done. Based on the presumption of bailout, the banks get higher ratings from the credit rating agencies which means they can borrow money for less, because their debt is viewed by the credit rating agencies as being less risky. And they get these higher ratings on explicit presumption that the government will bail them out and make good on their debt.

So it didn't deliver the goods where it matters the most. Again, not saying that it doesn't have some good positive things for our system and for people. But it didn't deliver the most important thing that we need if we want to address the causes of the last crisis and help prevent the next one.

BILL MOYERS: What will it take to prevent the next one?

NEIL BAROFSKY: Got to break them up. I mean, it is not a simple thing to accomplish, necessarily. But it's a very simple solution. And what you see, I think, kind of amazingly, is how many more people have come to this view over the last year or so. It used to be a lonely perch that we sat on. Former special inspector generals, a couple of academics.

But now you have people like Sandy Weill, the architect of Citigroup. And sure, too little too late, after he made all of his money off creating these Frankenstein monsters. But even he now recognizes that we have to break up the banks. You have senior officials at the Federal Reserve recently coming out in favor of this. The vice chair of the FDIC, a very strong advocate for breaking up the banks. And you hear it a lot more in members of Congress-- that are supporting this notion. So to me, on the one hand, it's absolutely essential. If we really want to get to the point where we don't have to bailout a bank, we have to make it so that no bank is so systemically significant and large that its failure could bring down the system.

BILL MOYERS: Are they up to their old tricks?

NEIL BAROFSKY: The banks? Sure. I mean, you know, so we had this regulatory reform of Dodd-Frank in 2010, which, you know, left them intact and inside. But it had all of these rules and all of these regulations that needed to follow. And right now it is hand to hand, trench warfare, combat with those lobbyists spending all that money on campaign contributions, on, you know, flooding the decision makers and the regulators with comment letters and endless meetings.

And pressuring members of Congress to put pressure on the regulators, to water down the rules, to basically get as much back to the good old days where they would have free reign to print money, take advantage of their too big to fail status, bully and push out the little guys, take advantage of consumers. And that's what all of these efforts area about are to preserve these very, very core profit streams that they had before.

And that's right now is where the battle is being waged. Not on TV, you know, not necessarily out in front, but behind the scenes where the next set of rules are being forged on what they're going to be able to do and how they're going to be able to do it...

Bill Moyers Fact Checks Bill O'Reilly's Misinformed Demagoguery

Bill Moyers is a gentleman. At one time I lived in his neighborhood. I enjoy watching his shows immensely. I am looking forward to seeing a video of his show with Matt Taibbi and Chrystia Rreeland discussing her new book Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else. I will almost surely feature it here when it does.

There is a link after Bill Moyers video to a short piece by Matt Taibbi. As Matt points out:

1) Bill Moyers doesn't work for NPR, and never has. He appears on television which is PBS. NPR is radio.

2) More significantly, Bill Moyers does not receive any money from PBS, or NPR from that matter. His show is entirely self-supported by donors as is stated at every broadcast.

If anything, Moyers supports public television.

This sort of flagrant abuse of the facts is nothing new for some of the major figures at Fox. I will watch some of their network shows, but I could not bear to listen to their news programs. I did at one time, but when the US entered into the Iraq war it become clearer to me that I was watching something that reassured me in a mythology that was growing increasingly foul.

I can only echo Moyers, that they create a dangerous bubble of misinformation, a "an alternate reality, where the truth is as elusive as a moonbeam and facts as alien as little green men with bug eyes."

No single source of news is good, but some are worse than others. And Fox has taken broadcast journalism to new lows, and encourages the other news departments to sacrifice their integrity in pursuit of corporate sponsors and ideology. MSNBC is to some degree their counterpart to the left. And the three major US financial networks are becoming little more than extended infomercials and political mouthpieces for the financial industry.

Money is power, and the corrupting influence of the monied interests is something that history warns us about again and again.

Some of this is due to the concentration of media ownership in corporate hands, and part is due to the repeal of the Fairness Doctrine and the downsizing of the FCC. I am no fan of censorship, because that is a two edged sword that always bites back.

Besides, it is fun to watch Jon Stewart and Steven Colbert parody the corporate media with their own words, and Fox in particular. As long as speech remains free, we will have the ability to learn what is and what is not, if we wish.



Matt Taibbi on the Moyers - O'Reilly Dust Up

Stocks and Precious Metals Charts - And All the Consequences

 

"Time to move the blame to where it really belongs.  That means no more coddling banks with bailout billions marked 'secret.'  No more allowing their executives lavish bonuses and new corporate jets as if they’ve won the megalottery and not sent the economy down the tubes.  And no more apostles of Wall Street calling the shots."

Bill Moyers, Changing the Rules of the Blame Game, Bill Moyers Journal, April 7, 2009

"Over the past 30 years the plutocrats have used their vastly increased wealth to capture the flag and assure the government does their bidding. Remember that Citigroup reference to "market-friendly governments" on their side? It hasn't mattered which party has been in power — government has done Wall Street's bidding.

This marriage of money and politics has produced an America of gross inequality at the top and low social mobility at the bottom, with little but anxiety and dread in between, as middle class Americans feel the ground falling out from under their feet. So it is that like those populists of that earlier era, millions of Americans have awakened to a sobering reality: they live in a plutocracy, where they are disposable. Then, the remedy was a popular insurgency that ignited the spark of democracy.  Now we have come to another parting of the ways, and once again the fate and character of our country are up for grabs. Democracy only works when we claim it as our own."

Bill Moyers, Bill Moyers Journal (last episode), 30 April 2010

"That sound of shattered glass you’ve been hearing is the iconic portrait of Jamie Dimon splintering as it hits the floor of JPMorgan Chase.  As the Good Book says, 'Pride goeth before a fall,' and the sleek silver-haired, too-smart-for-his-own-good CEO of America’s largest bank has been turning every television show within reach into a confessional booth.  Barack Obama’s favorite banker faces losses of $2 billion and possibly more – all because of the complex, now-you-see-it-now-you-don’t trading in exotic financial instruments that he has so ardently lobbied Congress not to regulate.

Once again, doing God’s work — that is, betting huge sums of money with depositor funds knowing that you are too big to fail and can count on taxpayers riding to your rescue if your avarice threatens to take the country down — has lost some of its luster. The jewels in Dimon’s crown sparkle with a little less grandiosity than a few days ago, when he ridiculed Paul Volcker’s ideas for keeping Wall Street honest as 'infantile.'”

Bill Moyers, Are JPMorgan's Losses the Canary in the Coal Mine?, May 16, 2012

"America's corporate and political elites now form a regime of their own and they're privatizing democracy. All the benefits - the tax cuts, policies and rewards flow in one direction: up. They (the corporations) are counting on your patriotism to distract you from their plunder. They're counting on you to stand at attention with your hand over your heart, pledging allegiance to the flag, while they pick your pocket.

In one way or another, this is the oldest story in America: the struggle to determine whether 'we, the people' is a spiritual idea embedded in a political reality - one nation, indivisible - or merely a charade masquerading as piety and manipulated by the powerful and privileged to sustain their own way of life at the expense of others."

Bill Moyers, September 23, 2016

And so we close in on the end of the first half of 2025.  And Donnie will be bragging about the stock markets being at new all time highs.

It's no longer Biden's market.  Or wars.   He owns it now.  And all the usual consequences.

The elite don't care.  Our rulers are not even concerned.  They don't believe in laws, or justice, or plagues. 

US markets will be closed next Friday for the Fourth of July.

The market in equities is at a bubble high in my estimation.  

Gold and silver were smacked down so the metals bears can minimize their paper losses and maximize their gains. 

'So we beat on, boats against the current, borne back ceaselessly into the past.'

And judgement waits. 

Have a pleasant weekend. 

Stocks and Precious Metals Charts - Financial Dreadnoughts

 

BILL MOYERS: And you say that this oligarchy consists of six megabanks.   What are the six banks?

JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.

BILL MOYERS: And you write that they control 60 percent of our gross national product?

JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.

BILL MOYERS: And what's the threat from an oligarchy of this size and scale?

SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it's not your problem. When it blows up, it's the taxpayer and it's the government that has to sort it out.

BILL MOYERS: So, you're not kidding when you say it's an oligarchy?

JAMES KWAK: Exactly. I think that in particular, we can see how the oligarchy has actually become more powerful in the last since the financial crisis.  If we look at the way they've behaved in Washington. 

For example, they've been spending more than $1 million per day lobbying Congress and fighting financial reform.  I think that's for some time, the financial sector got its way in Washington through the power of ideology, through the power of persuasion. 

And in the last year and a half, we've seen the gloves come off.  They are fighting as hard as they can to stop reform.

Bill Moyer's Journal, The Financial Oligarchy in the US, April 16, 2010

It was risk on today, as stocks rallied pretty much until the end of the day, going out on the highs.

VIX dropped as one might expect.

The Dollar gave up the 110 handle and more.

Gold and especially silver rallied hard off the recent price suppression.

Silver was kicking butt with both legs.

Let's see is this was just a flash-in-the-pan bear market relief rally or the beginning of a genuine bottom.

There was intraday commentary Authoritarianism of the Utopias.

Have a pleasant evening.

The Financial Oligarchy in the US

If you do nothing else this week, read the transcript or watch this video.

I have a serious difference of opinion with the speakers with regard to Robert Rubin and his role, but they make up for it with their description of Jamie Dimon as close to the White House and one of the most dangerous men in America today.

And I thought it was interesting that Simon Johnson would say openly that the ONLY Senator who is speaking the truth plainly is Ted Kaufman from Delaware.

Other than that they are substantially putting out a very sound and realistic view of the root of the problems that created the financial crisis, and what requires to be done to rebalance the system and create a sustainable recovery.

BILL MOYERS: And you say that these this oligarchy consists of six megabanks. What are the six banks?

JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.

BILL MOYERS: And you write that they control 60 percent of our gross national product?

JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.

BILL MOYERS: And what's the threat from an oligarchy of this size and scale?

SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it's not your problem. When it blows up, it's the taxpayer and it's the government that has to sort it out.

BILL MOYERS: So, you're not kidding when you say it's an oligarchy?

JAMES KWAK: Exactly. I think that in particular, we can see how the oligarchy has actually become more powerful in the last since the financial crisis. If we look at the way they've behaved in Washington. For example, they've been spending more than $1 million per day lobbying Congress and fighting financial reform. I think that's for some time, the financial sector got its way in Washington through the power of ideology, through the power of persuasion. And in the last year and a half, we've seen the gloves come off. They are fighting as hard as they can to stop reform.

The Financial Oligarcy in the US - Bill Moyer's Journal

Gold Daily and Silver Weekly Charts - Audacious Oligarchy

"The problem of the last three decades is not the 'vicissitudes of the marketplace,' but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy."

Dean Baker

"Most of them became wealthy by being well connected and crooked.  And they are creating a society in which they can commit hugely damaging economic crimes with impunity, and in which only children of the wealthy have the opportunity to become successful. That’s what I have a problem with. And I think most people agree with me."

Charles Ferguson, Predator Nation

"No lie can live forever."

Thomas Carlyle

There is a currency war ongoing.  It's objective is the subjugation of whole peoples, including the domestic public.  In a very real sense it is nationless.

There is an 'audacious oligarchy' of self-defined rulers who move freely between private industry and government, whose primary objective is preserving and furthering their own power and self-interest.

Sheldon Wolin called this 'inverted totalitarianism.' Economist Robert Johnson has called it an 'audacious oligarchy.'  And so have many other responsible economists from Simon Johnson to Jeffrey Sachs.

I do not think that warnings or lessons from history will be sufficient to provoke change. Hubris makes people deaf and blind to consequences.  They will not learn, nor be informed by anything outside their own small circles.

This implies that there will be another financial crisis,  a 'hard stop' in the Western markets. How and when that will occur I do not yet know.

Have a pleasant evening.

BILL MOYERS: And you say that these this oligarchy consists of six megabanks. What are the six banks?

JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.

BILL MOYERS: And you write that they control 60 percent of our gross national product?

JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.

BILL MOYERS: And what's the threat from an oligarchy of this size and scale?

SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it's not your problem. When it blows up, it's the taxpayer and it's the government that has to sort it out.

BILL MOYERS: So, you're not kidding when you say it's an oligarchy?

JAMES KWAK: Exactly. I think that in particular, we can see how the oligarchy has actually become more powerful in the last since the financial crisis. If we look at the way they've behaved in Washington. For example, they've been spending more than $1 million per day lobbying Congress and fighting financial reform. I think that's for some time, the financial sector got its way in Washington through the power of ideology, through the power of persuasion. And in the last year and a half, we've seen the gloves come off. They are fighting as hard as they can to stop reform.

The Financial Oligarcy in the US - Bill Moyer's Journal

Jobs Report Huge Miss at 38,000 Jobs Added, Stagnant Real Wages, Shrinking Labor Participation

"This election was lost four and five and six years ago and not this year. They didn't start thinking of the poor old common fellow until they started out on the election tour.

The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickled down. Put it uphill and let it go and it will reach the driest little spot.

But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night anyhow. But it will at least have passed through some poor fellow’s hands.

They saved the big banks, but the little ones went up the flue."

Will Rogers, 5 December 1932

I said yesterday that 'I have a hunch that gold and silver are being capped here for a reason.  Maybe.  It's hard to tell with the non-linear Fed.'

And today I think that things are becoming clearer, as suspected.  The Fed needs to raise rates to cool down the economy, in a pig's eye.  They want to raise rates for their own policy purposes, so they can lower them again when their latest paper asset bubble fails.

The common person may not understand all this, and the lessons from history.  But the 'experts' most certainly should understand them, and quite frankly they do.   They may not say so, they may never admit it, they may let themselves be convinced, and even convince themselves and quiet the nagging doubts, but at the end of the day they know exactly what they are doing, what they are abiding, what they are enabling if only by their silent acquiescence.

Then why do they keep pursuing the same failing policies, and try to justify them with wildly inaccurate forecasts and flat out misstatements of fact?   Why do the wealthy prosper while the country as a whole stagnates, and for years?

Why do the politicians go all out to try and maintain things as they are, even though they can clearly see with their own eyes that they are failing the people whom they have pledged to serve by oath?

Herein lies the credibility trap.   They wish to keep things as they are because, at least for them and their friends and cronies, the times are good, and for some wildly so.  Innovation is risky, but the wrongheaded consensus of the insiders is safe.   Insider do not speak ill of other insiders, and therein can keep their sinecures, their connections, and the camaraderie of the fortunate few.

They are caught between the age old Scylla and Charybdis of pride and profit.  They fancy themselves to be exceptional, a credentialed elite, but the sad truth is that their conceits and self-delusions are as old as Babylon, and evil as sin.

BILL MOYERS: And you say that this oligarchy consists of six megabanks. What are the six banks?

JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.

BILL MOYERS: And you write that they control 60 percent of our gross national product?

JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.

BILL MOYERS: And what's the threat from an oligarchy of this size and scale?

SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it's not your problem. When it blows up, it's the taxpayer and it's the government that has to sort it out.

BILL MOYERS: So, you're not kidding when you say it's an oligarchy?

Moyers Journal: How Did the Big Banks Get So Powerful? Easy Is the Descent Into Hell

Bill Moyers talks with former Citigroup Chairman John Reed to explore a momentous instance: how the mid-90's merger of Citicorp and Travelers Group, and a friendly Presidential pen, brought down the Glass-Steagall Act, a crucial firewall between banks and investment firms which had protected consumers from financial calamity since the aftermath of the Great Depression. In effect, says Moyers, they put the watchdog to sleep.

Listen carefully to the rationales provided for taking down Glass-Steagall, which helped to set up the current financial crisis and collapse. This interview with John Reed by Bill Moyers is one of the most powerful and yet simple summaries of the cause of the financial crisis that I have heard.

The arguments for 'free financial markets' are being repeated again every time there is a discussion of financial re-regulation, providing reform to curb reckless speculation, and shrinking the TBTF banks and the systemic risks which they provide.

All of them are fallacious, but they are backed by amoral self-interest and more importantly, big money.

Although the great landscape of moral decay covers the widespread fraud in the mortgage markets and the foreclosures, there is fine microcosm of this outcome to be seen in the blatant theft of customer money at MF Global by the broker and his banks, as the courts and the regulators turn a blind eye to the victims.

John Swinton is anecdotally, and quite possibly apocryphally, reported to have said this about journalists in The Gilded Age of robber barons, but it aptly describes the economists, politicians, lawyers, accountants, regulators, and the rest of the Wall Street demimonde of our day. Once one sells the integrity of their knowledge, they become tolerant of and even open to soft participation in a much broader set of injustice and crimes.

"The business of the journalist is to destroy the truth; to lie outright; to pervert; to vilify; to fawn at the feet of mammon, and to sell his country and his race for his daily bread.

You know it and I know it and what folly is this toasting an independent press? We are the tools and vassals of rich men behind the scenes. We are jumping jacks, they pull the strings and we dance. Our talents, our possibilities and our lives are all the property of other men. We are intellectual prostitutes."

After the Crash of 1929, in the Congressional hearings a Wall Street 'publicist,' A. Newton Plummer, revealed that the majority of financial journalists had been 'on the take' from the great stock pools and manipulators of the day. He could not be discredited by the deniers because he had kept a great cache of cancelled checks to prove his allegations. So he was largely ignored, his story buried for the sake of confidence and recovery, and the freedom and ease of the complicit.

And in our day, now that the music is stopped, the participants and enablers are standing with dirty hands, ashamed but too frightened to acknowledge their part in it, and more cynically, concerned about losing the benefits and the easy money they have obtained from it.

And so the nation is caught in a credibility trap that stifles recovery and reform, and there does not seem to be the ability or the will to return to healthy markets and a balanced economy, what is derided as the 'old normal.' Descensus Averno facilis est...

"Easy is the descent to hell; all night long, all day, the doors of dark Hades stand open; but to retrace the path; to come out again to the sweet air of Heaven - there is the task, there is the burden."

Virgil, The Aeneid

John Reed on Big Banks' Power and Influence

Stocks and Precious Metals Charts - A Requiem for the Exceptional

 

“The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true.  It really happened. These suspicions are valid.”

Gretchen Morgenson, Neil Barofsky: Into the Bailout Buzzsaw, July 21, 2012

“Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.”

George Orwell, 1984

"I was told point blank by Assistant Secretary of the Treasury, 'Neil, you're a smart guy. You're a young guy. You're a talented guy. You got your whole future in front of you. You've got a young family that's starting out.  But you're doing yourself real harm.'  And he told me that if I wanted to get a job out on the Street afterwards, it was going to really be hard for me.

And I explained to him that I wasn't really interested in that. And he said, 'Well, maybe a judgeship. Maybe an appointment from the Obama administration for a federal judgeship.  If all you do is soften your tone, be a little bit more upbeat, all this stuff can happen for you.'

When I had my incident with the assistant secretary that my deputy, another former federal prosecutor, who did narcotics work, said to me, 'Neil, you were just offered the bullet or the bribe, the gold or the lead.'  And what he was referring to was a society just like that, which was Colombia, back in the day when Pablo Escobar and the drug kingpins really controlled society. 

And in some ways, it creates this false illusion that there are people out there looking out for the interest of taxpayers, the checks and balances that are built into the system are operational, when in fact they're not. And what you're going to see and what we are seeing is a breakdown of those governmental institutions. And you'll see governments that continue to have policies that feed the interests of — and I don't want to get clichéd, but the one percent or the .1 percent — to the detriment of everyone else."

Neil Barofsky, Moyers & Company, 2012

"Indeed, one can be deceived in many ways; one can be deceived in believing what is untrue, but on the other hand, one is also deceived in not believing what is true."

Søren Kierkegaard, Kjerlighedens Gjerninger, SKS vol.9, 1847

"Over the past 30 years the plutocrats have used their vastly increased wealth to capture the flag and assure the government does their bidding.   This marriage of money and politics has produced an America of gross inequality at the top and low social mobility at the bottom, with little but anxiety and dread in between, as middle class Americans feel the ground falling out from under their feet.   Millions of Americans have awakened to a sobering reality: they live in a plutocracy, where they are disposable.   Once again the fate and character of our country are up for grabs.  Democracy only works when we claim it as our own."

Bill Moyers, Bill Moyers Journal, 30 April 2010


There will be a Comex futures contract option expiration for the precious metals tomorrow. 

Gold is being stopped dead at the overhead resistance.  

If it does break through that move might contain some energy.

Silver is weighed down a  bit by the big decline in the NDX.

Speaking of the NDX, it set a lower low today, and went out there, which is not constructive for those of the bullish persuasion.

The SP 500 managed to hold up.  I have marked the key support in green on the chart.  It if breaks that then run, bully, run!

Bitcoin had a bit of a problem getting out of its own way today, despite the big new buy from the true believers favorite strategy stock.

The mainstream media is starting to take note of the big international flows of gold bullion, and its recent price increase.  

Perhaps something significant is happening, or rather has been happening, and it is only now being noticed.

The US seems to think it does not need anyone else these days.  That is fine when you are riding high.  But if you stumble, there will be plenty of people all too glad to kick you on the way down.

How are the mighty fallen, and their weapons of war have perished.

I have spent the last couple of hours watching a guy in upstate NY on Youtube doing work on a cabin in the Adirondacks, and pretty gnarly repairs on an old skidsteer.   These are some of my favorite videos.  I may be an old dog, but I still like to watch the hunt, even from the porch.

It's the little things that make life worth living.

Have a pleasant evening.

Changing the Rules of the Blame Game

"Treasury Secretary Timothy Geithner “is covering up,” Black said...“They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent, they think Americans are a bunch of cowards, and that we'll run screaming to the exits"…

Bill Moyer's Journal
Changing the Rules of the Blame Game
Bill Moyers and Michael Winship

A cartoon in the Sunday comics shows that mustachioed fellow with monocle and top hat from the Monopoly game – “Rich Uncle Pennybags,” he used to be called – standing along the roadside, destitute, holding a sign: “Will blame poor people for food.”

Time to move the blame to where it really belongs. That means no more coddling banks with bailout billions marked “secret.” No more allowing their executives lavish bonuses and new corporate jets as if they’ve won the megalottery and not sent the economy down the tubes. And no more apostles of Wall Street calling the shots.

Which brings us to Larry Summers. Over the weekend, the White House released financial disclosure reports revealing that Summers, director of the National Economic Council, received $5.2 million last year working for a $30 billion hedge fund. He made another $2.7 million in lecture fees, including cash from such recent beneficiaries of taxpayer generosity as Citigroup, JP Morgan and Goldman Sachs. The now defunct financial services giant Lehman Brothers handsomely purchased his pearls of wisdom, too.

Reading stories about Summers and Wall Street you realize the man was intoxicated by the exotic witches’ brew of derivatives and other financial legerdemain that got us into such a fine mess in the first place. Yet here he is, serving as gatekeeper of the information and analysis going to President Obama on the current collapse. We have to wonder, when the President asks, “Larry, who did this to us?” is he going to name names of old friends and benefactors? Knowing he most likely will be looking for his old desk back once he leaves the White House, is he going to be tough on the very system of lucrative largesse that he helped create in his earlier incarnation as a de-regulating Treasury Secretary? (“Larry?” “Yes, Mr. President?” “Who the hell recommended repealing the Glass-Steagall Act back in the 90s and opened the floodgates to all this greed?” “Uh, excuse me, Mr. President, I think Bob Rubin’s calling me.”)

That imaginary conversation came to mind last week as we watched President Obama's joint press conference with British Prime Minister Gordon Brown. When a reporter asked Obama who is to blame for the financial crisis, our usually eloquent and knowledgeable President responded with a rambling and ineffectual answer. With Larry Summers guarding his inbox, it’s hardly surprising he’s not getting the whole story.

If only someone with nothing to lose would remind the President of that old story – perhaps apocryphal but containing a powerful truth – of the Great Wall of China. Four thousand miles long and 25 feet tall. Intended to be too high to climb over, too thick to break through, and too long to go around. Yet in its first century of the wall’s existence, China was successfully breached three times by invaders who didn’t have to break through, climb over, or go around. They simply were waved through the gates by obliging watchmen. The Chinese knew their wall very well. It was the gatekeepers they didn’t know.

Shifting the blame for the financial crisis to where it belongs also means no more playacting in round after round of congressional hearings devoted more to posturing and false contrition than to truth. We need real hearings, conducted by experienced and fiercely independent counsel asking the tough questions, or an official commission with subpoena power that can generate evidence leading, if warranted, to trials and convictions – and this time Rich Uncle Pennybags shouldn’t have safely tucked away in his vest pocket a “Get Out of Jail Free” card.

So far, the only one in the clink is Bernie Madoff and he was “a piker” compared to the bankers who peddled toxic assets like unverified “liars' loan” mortgages as Triple-A quality goods. So says Bill Black, and he should know. During the savings and loan scandal in the 1980s, Black, who teaches economics and law at the University of Missouri, Kansas City, was the federal regulator who accused then-House Speaker Jim Wright and five US Senators, including John Glenn and John McCain, of doing favors for the S&L’s in exchange for campaign contributions and other perks. They got off with a wrist slap but Black and others successfully led investigations that resulted in convictions and re-regulation of the savings and loan industry.

Bill Black wrote a book about his experiences with a title that fits today as well as it did when he published it four years ago – "The Best Way to Rob a Bank Is to Own One." On last Friday night’s edition of BILL MOYERS JOURNAL, he said the current economic and financial meltdown is driven by fraud and banks that got away with it, in part, because of government deregulation under prior Republican and Democratic administrations.

“Now we know what happens when you destroy regulation,” Black said. “You get the biggest financial calamity for anybody under the age of 80.”

What’s more, the government ignored warnings and existing legislation to stop it before the current crisis got worse. “They didn't even begin to investigate the major lenders until the market had actually collapsed, which is completely contrary to what we did successfully in the savings and loan crisis,” Black said. “Even while the institutions were reporting they were the most profitable savings and loans in America, we knew they were frauds. And we were moving to close them down.”

There was advance warning of the current collapse. Black says that the FBI blew the whistle; in September 2004, “there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle.”

But after 9/11, “The Justice Department transfers 500 white-collar specialists in the FBI to national terrorism. Well, we can all understand that. But then, the Bush administration refused to replace the missing 500 agents.” So today, despite a crisis a hundred times worse than the Savings and Loan scandal, “there are one-fifth as many FBI agents” assigned to bank fraud.

Treasury Secretary Timothy Geithner “is covering up,” Black said. “Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have massive losses, and that they're fine…

“They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent, they think Americans are a bunch of cowards, and that we'll run screaming to the exits… And it's foolishness, all right?

“Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, ‘We just can't let the big banks fail.’ That's wrong.”

Black asked, “Why would we keep CEO’s and CFO’s and other senior officers that caused the problems? That’s nuts… We’re hiding the losses instead of trying to find out the real losses? Stop that… Because you need good information to make good decisions… Follow what works instead of what’s failed. Start appointing people who have records of success instead of records of failure… There are lots of things we can do. Even today, as late as it is. Even though we’ve had a terrible start to the [Obama] administration. They could change, and they could change within weeks.”

He called for a 21st century version of the Pecora Commission, referring to hearings that sought the causes of the Great Depression, held during the 1930’s by the US Senate Committee on Banking and Currency.

Ferdinand Pecora was the committee’s chief counsel and interrogator, a Sicilian émigré who was a progressive devotee of trust busting Teddy Roosevelt and a former Manhattan assistant district attorney who successfully helped shut down more than a hundred Wall Street “bucket shops” selling bogus securities and commodity futures. He was relentless in his cross-examination of financial executives, including J.P. Morgan himself.

Pecora’s investigation uncovered a variety of Wall Street calumnies – among them Morgan’s “preferred list” of government and political insiders, including former President Coolidge and a Supreme Court justice, who were offered big discounts on stock deals. The hearings led to passage of the Securities Act of 1933 and the Securities Exchange Act of 1934.

In the preface to his 1939 memoir, “Wall Street under Oath,” Ferdinand Pecora told the story of his investigation and described an attitude amongst the Rich Uncle Pennybags of the financial world that will sound familiar to Bill Black and those who seek out the guilty today.

“That its leaders are eminently fitted to guide our nation, and that they would make a much better job of it than any other body of men, Wall Street does not for a moment doubt,” Pecora wrote. “Indeed, if you now hearken to the Oracles of The Street, you will hear now and then that the money-changers have been much maligned. You will be told that a whole group of high-minded men, innocent of social or economic wrongdoing, were expelled from the temple because of the excesses of a few. You will be assured that they had nothing to do with the misfortunes that overtook the country in 1929-1933; that they were simply scapegoats, sacrificed on the altar of unreasoning public opinion to satisfy the wrath of a howling mob….”

According to Politico.com, at his March 27 White House meeting with the nation’s top bankers, President Obama heard similar arguments and interrupted, saying, “Be careful how you make those statements, gentlemen. The public isn’t buying that…. My administration is the only thing between you and the pitchforks.”

Stand aside, Mr. President, and let us prod with our pitchforks to get at the facts.

Bill Moyers: Zombie Politics and Casino Capitalism

Henry Giroux speaks with Bill Moyers about the madness of the Anglo-American system.

Stocks and Precious Metals Charts - Devil Take the Hindmost - Here We Go Again

"Hubris calls for nemesis, and in one form or another it's going to get it, not as a punishment from outside but as the completion of a pattern already started."

Mary Midgley, The Myths We Live By


"Over the past 30 years the plutocrats have used their vastly increased wealth to capture the flag and assure the government does their bidding. This marriage of money and politics has produced an America of gross inequality at the top and low social mobility at the bottom, with little but anxiety and dread in between, as middle class Americans feel the ground falling out from under their feet.

Like those populists of that earlier era, millions of Americans have awakened to a sobering reality: they live in a plutocracy, where they are disposable. Then, the remedy was a popular insurgency that ignited the spark of democracy. Now we have come to another parting of the ways, and once again the fate and character of our country are up for grabs."

Bill Moyers, last episode of Bill Moyers Journal, 30 April 2010


“A mighty bubble of wealth is blown before our eyes, as empty, as transient, as contradictory to the laws of solid material, as confuted by every circumstance of actual condition, as any other bubble which man or child ever blew before.”

Edward Chancellor, Devil Take the Hindmost


"This is funny."

Doc Holliday, last words, November 8, 1887, Glenwood Springs, Colorado.

Stocks are reaching for a high note, on a bubble of easy money and slack oversight, as well as a lack of adult supervision.

Gold was hit hard today but bounced back.  Pure shenanigans.

Trump is losing it.  Nothing could be more obvious, even by his standards which are pretty weird.

Not much good can be said for the character of the rest of the political establishment and the elites in general.

That does not bode well for a country skimming the edge of the abyss.

Things could get quite intense and exciting over the next few months.

Learn to pray.

Have a pleasant evening.